TMI Blog2013 (9) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... D.[2008 (5) TMI 257 - SUPREME COURT] - appellant had acquired Technical know how from Austrian Company - Technical Know-how had been defined as knowledge which would enable a company receiving such know-how to do project - If we take note of definition of Technical know-how it becomes clear that expenditure incurred by assessee had rightly been considered as Technical know-how by AO - As per agreement IPR were to remain with appellant and final product was to be exclusive property of assessee. - Depreciation was rightly allowed - not eligible for benefit u/s 35. Development Expenses - Compact Project for Tractors - Premium Payable on Foreign Currency Convertible Bonds (FCCB) - Reversal of Premium payable on FCCBs - Held that:- CIT V. ITC Hotels Ltd.[2009 (11) TMI 582 - Karnataka High Court] and CIT v. Secure Meters Ltd.[2008 -TMI - 32081 - HIGH COURT RAJASTHAN ] even if debenture were to be converted into share at a later date, expenditure incurred on such convertible debenture had to be treated as a revenue expenditure - expenses incurred in connection with issue of FCCB were revenue in nature - No one was entitled to double deduction, so no one should suffer double taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by it on behalf of AE - assessee was responsible only for insurance of products in course of transit, which became a liability of AE after it reached destination - No evidence in shape of expenditure had been divided to TPO or in DRP proceedings as to documentations kept. Disallowance of Capital Loss on Sale of R D Assets - Held that:- There was a fundamental, though unwritten, axiom that no Legislature could have at all intended a double deduction in regard to same business outgoing; and, if it is intended, it will be clearly expressed. In other words, in absence of clear statutory indication to contrary, statute should not be read so as to permit an assessee two deductions - section 35 was part of head Income from business,profession or vocation - section 43 was part of same heading - provisions of head Capital Gains cannot be imported here to allow assessee one more deduction. Consideration Received on sale of LCV business in form of non-compete covenant treated as business income Held that:- Amount received by appellant was of a revenue nature - Guffic Chem (P) Ltd. Mandalay Investment P. Ltd v. CIT[2011 (3) TMI 6 - Supreme Court] - as per amended provisions w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Due Diligence study in China 65,44,720 2 Legal expenses for acquisition of Euriss Motors. (Italy) 15,38,942 3 Deed of assignment with MIPL orient Law Firm 25,000 4 Memorandum fees Orient Law firm 5,000 5 Payment to Azb Partners for Project Ganesh/International Trucks 87,96,804 B Expenses incurred in connection with proposed acquisition of Tractorul UTB S.A.Brasov Romania. 3,48,12,788 (Break up of Expenses attatched) C Expenses incurred for other acquisitions 2,35,65,648 1 Foreign travel expenditure 3,274,953 2 KPMG Fees provided Stokes 881,600 3 Fee For Technical Serv To Stokes Forgings WaIlsall 234,300 4 Prof Fess Flexion Review Acquisition $ 896 39,684 5 Tds-Eur 120@54.68-Fin Tax Due Deligence 6,562 6 Prof.Chrgs. Due Diligence Of Stokes Group 71,48,331 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of Bonus Shares E Expenditure on issue of FCCB 3,15,063 Bank charges-FCCB 122,179 FCCB Bonds -Adm Fee Out Pkt Exps $ 4428 @ 43.56 192,884 F Bank charges Lead manager fees 30,00,000 TOTAL 7,97,64,054 treating the same as capital expenditure and also for the reason that these expenses were not incurred for the purposes of the business of the appellant:The DCIT ought to have upheld the Appellant s contention that the expenses were incurred wholly and exclusively for the purpose of business of the Appellant and therefore were allowable as deduction.Without prejudice to the above, the Appellant contends that the DCIT should have allowed depreciation thereon at the appropriate rate. Without prejudice to the above, the Appellant contends that the DCIT should have allowed depreciation thereon at the appropriate rate. 2. Expenses in connection with development of engine Rs. 1,00,83,026/- On the facts and in the circumstances of the case and in law the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and in law the DCIT erred in treating the incremental CENVAT credit balance of Rs. 25,18,342/- (₹ 42,19,86,486/- as on 31.3.2006 as reduced by Rs. 41,94,68,144 as on 31.3.2005) as revenue income liable to tax be included in the income of the Appellant. 7. Octroi Incentive not taxable being capital receipt Rs.2050.92 lakhs On the facts and in the circumstances of the case and in law the DCIT erred in not accepting the contention of the Appellant that Octroi Incentive of Rs.2050.92 lakhs received during the year was in the nature of capital receipt and therefore was not liable to tax. 8. Special Pension Rs.48,87,957/- On the facts and in the circumstances of the case and in law the DCIT erred in allowing deduction u/s 35DDA for only 1/5th (iRs.9,77,591) of the amount of provision made for liability of Rs.48,87,957/- on account of special pension based on the valuation provided by the Appellant rejecting the contention of the Appellant that the provisions of the said section were not applicable to the facts of the case and accordingly the entire amount of Rs.48,87,957 was allowable in the year under appeal. 9. Provision for Warranties Rs. 16, 19,08, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thereby not accepting the contention of the Appellant that no expenditure was incurred in relation to exempt income earned by the Appellant during the relevant year so as to warrant disallowance u/s 14A. 14. Payments to Clubs - Rs.1,17,01,995/- On the facts and in the circumstances of the case and in law The Appellant contends that the D.C.I.T. erred in disallowing as capital expenditure a sum of Rs.1,17,01,995/- being membership fees paid by the Appellant to various clubs, disregarding the fact that the said payments are in the nature of revenue expenditure and have been made wholly and exclusively for the purposes of business. 15. Adjustment u/s 92CA(3) to Arm s Length Price of international transaction adjustment of Rs.1,26,51,602/-. On the facts and in the circumstances of the case and in law, the DCIT erred in adding a sum of Rs.1,26,51,602/- to the total income of the Appellant, being the amount of adjustment made in TPO s order u/s 92CA on account of the determination of Arm s Length Price (ALP) on international transactions with an Associated Enterprise. The addition be annulled. 16. Disallowance of capital loss on sale of R D assets of Rs.1,85,21, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive of the issue. 21. Disallowance of deduction under section 801C On the facts and in the circumstances of the case and in law the DCIT erred in not recording a finding that the Appellant had during the year set up an undertaking, profits derived from which would be eligible for deduction u/s 80-IC of the Act and in not quantifying the loss suffered by the said undertaking in the year under assessment. 22. Short Credit of TDS of Rs.185,57,211/- On the facts and in the circumstances of the case and in law the DCIT erred in not allowing credit for TDS of Rs.1,85,57,211/-. 2.First Ground is about disallowance of Rs.7.97 Crores. While going through the audit report of the Appellant, Assessing Officer(AO) noticed that the Appellant had debited capital expenditure amounting to Rupees to 20.04 Crores to the profit and loss account. When inquired the Appellant submitted that out of Rupees Rs.20.04 Crores,Rs.12.07crores were added back to the computation and the balance expenditure amounting to Rs.7.97Crores was claimed as revenue expenditure. 2.1.Before us, the Authorised representative (AR)submitted that expenditure incurred by the assessee-on account of i)consultanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure is that if the expenditure is incurred for obtaining an advantage of enduring benefit it would be capital expenditure. But, the test of enduring benefit is not a certain or conclusive test and it is not be applied blindly and mechanically. In other words every advantage of enduring nature acquired by an assessee is not covered by the said concept. In a given case, the test of enduring benefit might break down. The idea of once for all payment and enduring benefit are not something akin to statutory conditions; nor are the notions of capital or revenue a judicial fetish. Concepts of capital/revenue expenditure are not eternal verities, but are flexible ones. ii).What is material in this regard is to consider the type, nature and character of the advantage in a commercial sense on one hand and on the other to look in to the aim, intended object, effect of the expenditure and in the larger context of necessity and expediency. Legal rights secured in the process are also relevant in deciding the issue. iii).If the expenditure is related to the carrying on or conduct of the business or is intrinsically connected with the running of a business the expenditure is to be regarded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commencement or continuance of the business, the expenditure would be a capital expenditure. xi).If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would fall in the category of capital expenditure. xii).If the amount is spent for preserving and maintaining the present asset in existence, it cannot be said that the expenditure so incurred is capital in nature xiii).Where the object of incurring an expenditure is to effect a capital structure as a result of which certain incidental advantage flows, the expenditure will be of capital nature. Capital expenditure can be incurred after a company is floated or after it starts its business. xiv).Ordinarily, the word capital expenditure refers to the expenditure which is of a permanent nature or for securing tangible or intangible property, corporeal or incorporeal right. 2.4.In the case under consideration the appellant had not produced copies of the acquisition agreements before any of the lower authorities. So, they had no occasion to decide as whether the transactions entered in to by the appellant were acquisition of a concern or ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure-capitalist. Appellant has not produced any data to show that it was engaged in the business of M A in the succeeding and previous years. of the assessment year under consideration and that income from such M A operations was more than the income of manufacturing the motor vehicles etc. We are of the opinion that expenditure incurred by the appellant for successful or aborted acquisitions was capital in nature. While holding the acquisition expenditure as capital expenditure we have considered the type, nature and character of the advantage as well as the aim, intended object, effect of the expenditure in the larger context of necessity and expediency. Source /manner of the payment or quantum of expenditure are not at all the conclusive factors for deciding the issue under consideration. The issue has been decided after taking in to consideration the basic facts i.e. whether the expenditure was for running the business or not? We are of the opinion that expenditure amounting to Rs.7.97 Crores was spent for the purpose of bringing into existence a new asset /obtaining a new advantage. So, part A,B and C of the Ground No.1 are decided against the appellant. However, allowing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusive property of the assessee and that such acquisition was in nature of intangible assets in terms of section 32 of the Act. 3.1.AR submitted that the appellant company was already in business of manufacture of vehicles, that expenses were incurred in the course of carrying on of the same business though on up-gradation of engine to meet scientific norms of emission to make the vehicles more eco-friendly, that expenditure was deductible u/s. 37(1), that the appellant regularly introduced new models and upgraded existing products, that there was no increase in capacity, that no capital asset was acquired, that similar expenditure was held to be revenue in nature, in the case of Swaraj India Ltd. by the Hon ble Supreme Court in 309 ITR 443,that the issue was covered in favour of the assessee(ITA/7845 and 8140/ Mum/2000 AY 1997-98, ITA /2523 and 3078/Mum/ 2005, AY1998-99). Alternatively, it was submitted that even if the said expenditure was held to be capital,it was allowable u/s.35(1) (iv)of the Act. Relying upon more than a dozen cases the AR submitted that expenditure incurred for up-gradation of the engine should be allowed as a revenue expenditure. DR strongly supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elling expenses, etc., was revenue in nature that there was no enduring benefit from the expenditure, that the said expenditure was capital nature. Finally, the Hon ble High Court held -" Merely because the benefit of the type of expenditure involved in this case is such a benefit, can also be available later, is not a good enough reason to treat the expenditure, which is otherwise of a revenue nature, as a capital expenditure. iii).The facts of Essel Propack Ltd. case, decided by the Bombay High Court (325 ITR 185)were as under: Under a collaboration agreement the assessee paid fees for non-exclusive license for 5 years for manufacturing of machines in India. The patents rights remained with the licensor. The assessing officer treated the said expenditure as capital. Deciding the case, filed by the revenue, the Hon ble High Court observed- "...the assessee entered into an agreement with a company by the name of registered in Republic of Mauritius, under which the licence granted to the assessee are non-exclusive license, restricted to the territory of India to manufacture and use tube making machines and the tools and parts thereof with the right to register the licence. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s assumed that there was a benefit of enduring nature, not all enduring benefit could be classified as capital expenditure,that payments made were for services rendered in relation to process of manufacture. Dismissing the appeal filed by the revenue. The Hon ble High Court held ... The only services that were rendered to the assessee was in relation to the process of manufacture...... There can be no doubt that the assessee acquired technical know-how to enable it to manufacture the products and this was more in the nature of information, guidance or payment for consultancy." v).In the matter of Escorts Auto Components Ltd.(323ITR11)the question before the Punjab and Haryana High Court was that whether the ITAT was right in law in holding the order of the CIT (A) in deleting the addition of Rs.72.6 lakhs on account of new project expenses holding the same to be of a revenue nature as against the admission of capital nature by assessee in its notes to an accounts, even though the assessee had identified Rs.72.64 diversification and expansion of new product range, including acquisition of machinery to add such expansion and the amount had been shown pending technical quantificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for fresh consideration in accordance with law. On the second question, we do not wish to express any opinion. It is for the High Court to decide, after construing the agreement between the parties, whether the expenditure is revenue or capital in nature....." vii). In the case of Honda Cars India Ltd.(38 SOT471), one of the questions to be decided by the Tribunal was that whether the CIT (A) had erred in law and facts by allowing relief of Rs.27.78 Crores by taking lump-sum fees for technical guidance is revenue expenditure as against capital expenditure held by the AO. The tribunal observed as under- "... it would be seen that the assessee obtained only the right to use,during the currency of the agreement,the technical know-how and information and the intellectual property rights relating to the manufacture of Honda cars and did not secure any ownership rights over them. We, therefore, hold that the payment of the lump-sum fees for technical know-how and the royalty is allowable as revenue expenditure." viii). In the Engineering Innovation Ltd. matter (327ITR392)following substantial questions of law were before the Hon ble High Court of Himachal Pradesh. "(i) whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablish a new factory, and a case where for manufacturing a new product, a new company is constituted or formed. What we have to consider is whether the payment has been made for acquiring an asset of an enduring nature. If know-how has been acquired unrelated to see create or patented processes or the right to use the trade name or trademark than the acquirer of know how sense that phrase was repeatedly used or emphasised would seem to acquire more asset of enduring nature is the know-how acquired relates to the setting up of the plant or machinery, then perhaps it may help to be held to be capital in nature, although we are not called upon to decide that question in present reference is the know-how acquired relates to process of manufacturing than the payment made for the same would have to be considered as an expenditure, since the acquirer does not obtain by the expenditure. Any asset of an enduring nature.... We are of the opinion that the payments made by the assessee in the instant case were fully allowable is revenue expenditure." x).In the case of Transweeigh (India) Ltd. decided by the ITAT, Mumbai, it was found by the AO that in the balance-sheet under the head fixed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in a continuous manner for years together, and no material has been brought on record by the revenue to controvert his claims of the assessee, hence, merely for the reason that assessee is having a technical Corporation or is developing various prototypes, these activities cannot be termed as not of the nature of scientific research.In this view of the matter,we hold that the expenditure claimed by the assessee is revenue is allowable u/s. 35(1) of the Act and a capital expenditure incurred by the assessee in this regard is allowable u/s. 31(iv) read with section 35(2) of the act." xi).The facts placed on record in the case of Metalman Auto (Pvt.) Ltd.(78ITD357) showed that the assessee had debited expenditure amounting to Rs.5.48 lacs to the P L account under the head R D expenses. The assessee claimed the same as revenue expenditure. The AO noted that expenditure incurred on design and development of tools was a part and parcel of the plant and machinery being used to manufacture the components, that expenditure incurred on designing of these tools give the assessee benefit of enduring nature and that the expenditure was capital in nature. You allow depreciation at the rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation already available with the assessee. Therefore, the expenditure incurred by the assessee is off a revenue nature and is allowable u/s. 37 of the Act." xii).Next case, Glaxo Smith Kline consumer Healthcare Ltd., decided by the Chandigarh bench of the tribunal (ITA/379 and 534/Chd/2004 and 309 and 310/Chd/2005),is for assessment yeaRs. 1998-1999 to 2001-02. In that case 1st issue with regard to the disallowance of Rs.3.21Crores made by the AO on the ground that the expenditure in question is capital in nature. Briefly stated, the facts were that the appellant incurred an expenditure of Rs.3.21 crores on promotional and trade marketing expenses in relation to the existing products Rs.1.57 crores and on product development expense for new products 1.63 crores which was claimed as a revenue expenditure u/s.37 (1) of the Act. According to the AO expenditure resulted in providing the assessee with information on consumers needs, taste and bounds, based on which the assessee would be able to decide on the constituent of the new product, its pricing its target market, etc., which, in turn, would allow the assessee to build a product, brand and long-term strategy. CIT(A) upheld t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses the efficiency of the business. The suspect, in our considered opinion is to be decided in the light of the business realities, under which the assessee is operating......In our humble opinion , the expenditure in question has merely enable the assessee to remain competitive in the market and retail the customer preferences and/loyalty towards its brand of products. The said advantage certainly is not limited to the period under consideration, but spills over to the future also. So, however, this is not conclusive to hold that the expenditure in question is a capital expenditure...... in conclusion, we hold that. Having regard to the aforesaid discussion, the claim of the assessee for allowability of the impugned expenditure is revenue expenditure is justified. xiii). In the matter of Munjal Showa Ltd.(2010-IT1-GJX-0411-DEL) revenue had placed following two questions is question of law before the Hon ble High Court of DelhiITA "2.1. Whether learned ITAT correct in low in holding that the expenditure incurred by the assessee on account of design and drawing fees are revenue expenditure instead of capital expenditure? 2.2 whether learned at ITAT erred in holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, amounting to Rs.57.3Lacs was discussed. The assessee claimed said expenditure is a revenue ,whereas the AO treated it as capital. The matter was decided in favour of the assessee by the tribunal as under "We have considered the rival submissions and have perused the material placed on record. A perusal of the expenses indicates that the expenditure in question was incurred on salary, electricity, natural gas, etc., the mere fact that the expenditure which is otherwise revenue expenditure has been treated as deferred revenue expenditure in the books of the company cannot for that reason alone be disallowed in computing the total income.... We are of the opinion that the expenditure is allowable as an expenditure." 3.3. In view of the above discussion, we are of the opinion that all the cases relied upon by the AR are about capital/revenue expenditure. They deal with a situation is when a particular expenditure can be considered capital/revenue expenditure. Mandate of section 32 (1)(ii) has not been considered in these cases, except in the case of Essel Propack Ltd. In the cases referred to by the AR issue of depreciation u/s. 32 (1)(ii) verses the allowability of expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed. (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: ...... Clause (ii) introduced in section 32(1) with effect from April 1,1999, not only extends the benefit of section 32 to intangible assets, but also gives therein an inclusive definition of the intangible assets for this purpose. Sec.32(1)(ii) mentions that know-how,patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after April 1,1998 will be entitled for depreciation at a specified rate. We are of the opinion that appellant had acquired Technical know how from the Austrian Company. Technical Know-how has been defined as the knowledge which would enable a company receiving such know-how to do the project . If we take note of the definition of Technical know-how it becomes clear that expenditure incurred by the assessee has rightly been considered as Technical know-how by the AO.As per the agreement IPR were to remain with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds (FCCB).As per the AO the bonds were convertible into shares and, therefore, could not be construed as a borrowing, that they increased capital base of the company and that the expenditure incurred was capital in nature. The AR submitted that FCCB were a form of borrowing that they were shown in the balance sheet under loans that premium payable on redemption was cost of borrowing, that option of conversion of bonds into shares was only with the bond holders, that conversion was a subsequent event which did not change the initial character of the bonds of a debt, that in the event of redemption payment of premium was mandatory, that premium being a cost of borrowing was allowable on time, that premium was neither capital nor contingent in nature, that issue of FCCB had been held to be revenue in appellant is own case for the assessment year 1997-98 (ITA/7845/M/2004).DR supported the order of the AO. In the matter of Crane software International Ltd. (ITA /741 and 742 Bangalore / 2010) issue of FCCB have been discussed as under "...the expenses were incurred in connection with the issue of FCCB. As the bonds were convertible, the assessing authority treated the bond procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of ITC Hotels Ltd.(334 ITR 109) held that even if the debenture is to be converted into a share at a later date, the expenditure so incurred for collection of debenture is to be treated as an expenditure of revenue nature. 5.1.Respectfully following the decisions of the above referred Hon ble courts we hold that expenses incurred in connection with the issue of FCCB were revenue in nature. 5.2.Second part of the Ground 4 is about deduction for a right back during the year of excess provision of premium payable on FCCB of Rs.843.76 lakhs which was disallowed in the assessment for the assessment year 2005-06. AO was of the opinion that deduction was allowable only if the assessee accepted disallowance in the year under consideration. In this regard the appellant made following submission before the AO- "Against the claim made in the assessment year 2005-06 of Rs.1303.52 lakhs, the bond holders. holding 64.73% have opted for conversion of the foreign currency convertible bonds into GDR's/shares of the company. Accordingly, is the amount of premium of Rs.873.76 lakhs is no longer payable in the same is offered to tax in the competition u/s.41(1) of the income tax ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered in proper prespective.Pg.131-134 of the paper book were also referred to by him to support his submission. He relied upon cases of Hawkins cookers Ltd., (ITA number 505/mum/04 assessment years. 1999-00), Indo Nippon Chemicals co Ltd., Dai Ichi Karkaria Ltd.(156 CTR 172), Bharat Bijlee Ltd. (ITA number 6410/Mum/2008)and Dimple Drums and Barrels private Ltd(ITA number 3228/Mum/2010). DR submitted that AO had decided the issue as per law, that income had accrued to the appellant and that same has been rightly taxed. 6.2.We find that the AO in his nine-page discussion (Page 35 to 44) has deliberated upon various issues with regard to Modvat credit. But, it appears that he has not considered the data available on page number 131-134 of the paper book submitted during appellate proceedings. Even if he has considered the said data, he is not mentioned anything about it in the assessment order. We are of the opinion that, for arriving at a logical conclusion figures furnished by the assessee has to be considered and commented upon. In these circumstances, in the interest of justice we remit back the issue to the file of the AO. He is directed to give proper effect to stocks, purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that the issue of sales tax subsidy had not attained finality,that provisions of section 41 (1) and 43 (1), explanation 10 were applicable in the case under consideration, that in light of matter of Sahney Steel subsidy in question should be held revenue receipt. 7.2.We are aware that matter of Sales Tax Subsidy in the case of Reliance Industries has been restored back to the Hon ble High Court of Bomby. We are also aware that in the matter of Wardex Pharmaceuticals P. Ltd Hon ble High Court of Madras has held that Sales tax subsidy was revenue in nature (307ITR387) and that Hon ble Gauhati High Court has held that transport subsidy was of revenue nature (332ITR91).But, we will not like to discuss these cases to decide the matter before us. We would like to deliberate upon facts of the case and principles propounded by the Hon ble SC in this regard. In the case of Sahney Steel and Press Works Ltd.(228ITR253) it was held by the Apex Court that subsidies by way of refund of sales tax relief of electricity charges or water charges were given after commencement of production and hence they were operational subsidies, and were not capital subsidies. Hon ble SC held : If payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a capital in nature as the assessee was obliged to utilise the subsidy only for the payment of term loans undertaken by the assessee for setting up new units/expansion of existing business. Applying the about tests to the facts of the present case and keeping in mind the object behind the payment of the incentive subsidy we are satisfied that such payment received by the assessee under the scheme, was not in course of trade, but was off capital nature." From the above it is clear that case of Ponni sugar was decided after applying tests to the facts of that case. In present case subsidy was not granted to repay term loans advanced for setting up new units/expansion of existing units only. Thus, in our opinion case of Ponni Sugar is of no help for the assessee. 7.3.As directed by the bench AR submitted the details of breakup of subsidy received by the appellant i.e. out of the total subsidy received how much related to revenue items and how much related to fixed assets. From the details filed by the appellant it transpires that for the period under consideration out of the total subsidy (19.7Crores)subsidy amounting to Rs.2.61Crores was referable to capital items, whereas s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's own case pertains to AY1977 78. In the AY 1977 78, the provision of section 35DDA was not in the statute. The section 35DDA was not introduced when the Hon ble High Court delivered the judgement and also the section was not applicable for AY1977 78. Therefore, the Hon ble High Court did not have the occasion to consider the provisions of section 35 DDA of the Income tax act. ii) the direction of special pension claims during the year is covered as per section 35 DDA which is evident from the plain reading of the section....." 8.1.AR submitted that the claim related to employees who had opted for the VRS. prior to 01. 04.2004.Since the claim was in respect of actual real valuation of the pension liability (commuted and monthly), payable in future, payments could not be covered by the provisions of section 35 DDA, that at the relevant period section 35 DDA dealt with the expenditure at the time to voluntary retirement, that with effect from assessment year 2004-05,it referred to payment in connection with the voluntary retirement. DR supported the order of the AO. 8.2.We have gone through rival submissions. Before the introduction of section 35DDA, the legal dictum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known as whether the schemes were part of composite voluntary retirement scheme is or they were stand-alone. In the circumstances, we are of the opinion that it would be proper to remit back the matter to the file of the AO to decide the issue in light of the about discussion. 9.Next Ground of appeal is about the disallowance made by the AO on account of warranty liability.AO has discussed the issue as under: "During the course of assessment proceedings, it was noticed that the assessee has claimed the provision for warranty at Rs.44,20,09,000/-. On the perusal of note 10 to the annual accounts, it is noticed that that the provision relates to warranty made in respect of certain products, the estimated cost of which accrued at the time of sale. The products are generally covered under a free warranty period ranging from one year to 3 years." After considering the submissions of the assessee and directions of the DRP-II, Mumbai, the assessing officer held : "The contention of the assessee has been verified and found to be incorrect due to the following reasons: (i) The assessee has stated that it has adopted a scientific basis of the competition of the provision for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95,1996- 97,1997-98,1998-99.In the paper book filed by the assessee order for the assessment year 1994-95 was not available. In the assessment year 1996-97 and 1997-98 orders. for the assessment years. 1991-92 and 1995 -96 were followed. In the assessment year 1998-99 order for the assessment year 1997-98 was followed. Thus, it is clear that it was for the A.Y.1991- 92 that the claim made by the appellant was accepted by the tribunal for the first t time. 9.2. We would also like to reproduce the chart submitted by the appellant to the assessing officer during the assessment proceedings and it reads as under- (Rs.in lakhs) Division Provision for warranty made in the preceding year i.e. A.Y.2005-06 Provision for warranty for the year i.e. A.Y. 2006-07 Incremental provision for warranty Automotive div. 3293.74 4244.59 1558.30 Tractor division 1405.62 2061.60 36.37 Defence division 3.04 15.29 3.04 Total 4702.40 6321.48 1619.08 DR submitted that in light of the observation of the Hon ble Supreme Court made while deciding the matter of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the amount of the obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income-tax Act, 1961. It was further held - The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when : (a) an enterprise has a present obligation as a result of a past event ; (b) it is probable that an outflow of resources will be required to settle the obligation, and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. The principle is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant has been manufacturing and selling valve actuators. They are in the business from the assessment yeaRs.1983-84onwards.Valve actuators are sophisticated goods. Over the years. the appellant has been manufacturing valve actuators in a large numbers. The statistical data indicates that every year some of these manufactured actuators are found to be defective. The statistical data over the years. also indicates that being sophisticated item no customer is prepared to buy valve actuator without a warranty. Therefore, the warranty became integral part of the sale price of the valve actuator(s). In other words, the warranty stood attached to the sale price of the product. These aspects are important. As stated above, obligations arising from past events have to be recognized as provisions. These past events are known as obligating events. In the present case, therefore, the warranty provision needs to be recognized because the appellant is an enterprise having a present obligation as a result of past events resulting in an outflow of resources. Lastly, a reliable estimate can be made of the amount of the obligation. In short, all the three conditions for recognition of a provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at the year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty pro- visions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an outflow of resources. A reliable estimate of the obligation was also possible. Therefore, the appellant has incurred a liability, on the facts and circumstances of this case, during the relevant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. The assessee indicated that it had taken into account the sales of six months of the immediate previous year i.e. of October, 2002 to March, 2003, since the claims of warranty in respect thereof were to be settled in the current year itself. The AO disallowed the assessee's total claim for provision made for warranty treating it to be of a contingent nature. CIT(A)confirmed the finding of the AO .The Tribunal held that the working of the average rate of warranty expenses was rational and scientific and thus acceptable, but the rate had to be applied to the sales made during the current year only. The sales made during the period from October 2002 toMarch,2003 had been recognized in the previous year ended on March 31,2003 and the assessee had incurred actual warranty expenses in the current year with regard to the same. Moreover, the actual warranty expenses had already been allowed by the AO and thus there was no reason to make a provision for warranty expenses for the sales of the previous year.Consequently, the Tribunal reduced the provision by the sum pertaining to sales for the period from October, 2002 to March 31, 2003. In the appeal filed by Revenue Hon ble HC of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment years 2004-05 and 2005-06 where provisions which were made during the year were Rs.90,412,453/- and Rs.95,279,000/-, respectively, and against which the actual payments were Rs.60,152,183/- and Rs.64,711, 000/-. Learned senior counsel contended that consequently in the subsequent years the claims of warranty, therefore, were a high percentage of the provision made. It was further contended that it is not as if a huge provision is made every year because there is a reversal in each subsequent year, i.e., although no doubt in each year provision is made as a percentage of turnover, in net effect, it is only the higher difference if there is a higher turnover, then there is a net additional provision inasmuch as the extent of provision made in the earlier year which is not paid of as warranty charges is to the extent of not utilised in payment of the warranty claims credited to the profit and loss account. Counsel, therefore, contended that it may appear that every year a huge figure is debited, however, that is in reality not the correct picture. Of course, we may note that even counsel for the Revenue does not dispute this position as, according to her, only the diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re ; spare parts and software and so on. The policy document further provides for warranty periods for different types of subjects and also deals with the requirement of financial terms for the warranty to be made. This is a nine page document and it is difficult for us to reproduce the same in the body of this order, however,it is quite clear that the policy and principles with respect to provisions for warranties which are made by the assessee-company is not simply an ad hoc method without any scientific basis. The scientific basis is consistently applied by the assessee-company for its business throughout the world . We frame this question of law and in view of above discussion answer the said question of law as under : The assessee-company is entitled to make a provision for the warranty charges holding the same to be a definite business liability allow- able as a deduction during the years under consideration, since the same is based on a scientific basis and a consistent policy applied by the assessee-company throughout the world including India and that consistent application of the same principle over the years would remove any advantage which, according to the Revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm of statements and after considering the stand of the revenue as well as the assessee, the Tribunal has rendered its finding is under in paragraph 11. "11. It is seen from the chart reproduced in paragraph (8) above that the multiplying factor was 3.99 in assessment year 2002 03 and that it came down to 0.67 in 2007-08. Since the basis of computation is the average of the immediately visiting the years actual settlements, the accumulated credit balance in the provision for warranty account will become self-limiting, as can be seen from the chart in paragraph (8) above. For the assessment year 2007-08, the sale was more than 3 times the sale for assessment year 2002-03, whereas the provision for warranty was about one half. Further, the genuineness of the figures of the actual settlements has not been doubted by the AO . In view of these facts, the method of computation adopted by the assessee cannot be said to be arbitrary, and therefore, we see no reason to interfere with the conclusions reached by the CIT (A)." From the above discussion, it is clear that the working of liability in this case was based on a reasonable and scientific basis. Not only this, there was revaluat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as considered the provision of warranty at length and has held that where a reliable estimate of an obligation is made, the provision of warranty is allowable. Similar view, have been expressed by the Hon ble Delhi High Court, also in the case of Ericsson communication private Ltd. In our opinion, the decision of the Hon ble Supreme Court and that of the Delhi High Court are very much applicable to the facts of the case before us and respectfully following the same, we allow this ground of appeal of the assessee." Thus, in this case also figures were available to the Tribunal to hold that procedure adopted by the assessee was reasonable or not? vii). In the case of Godrej Appliances Ltd. principles of Rotrok were neither referred to nor applied.In this matter, G Bench of the Tribunal ,has held as under We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that a similar issue was involved in the assessee's own case for the earlier years and the same has been decided by the Tribunal consistently in favour of the assessee. In one of such decisions rendered by the Tribunal vide its order dated 5 July, 2005 past and ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales for determining warranty liability, and what was the rate of reversals of liabilities in the earlier years .We find that in the case under consideration, the assessee did not provide material with regard to warranty liabilities (except a table found at pg.53 of the assessment order)to the AO or to the Redressal Penal during assessment/hearing proceedings. From the said chart(pg.53) any reasonable conclusion cannot be drawn, as desired by Rotrok.We find that the company has not scrutinised the historical trend of warranty provisions made and compared it with the actual expenses incurred. Appellant has failed to prove that figures furnished by it are based on a sensible estimate .We find that evidence of yearly reassessment of such estimates were not produced. In other words appellant has not maintained data systematically .In these circumstances, we are of the opinion that matter should be remitted back to the file of the AO to decide the matter, as per the guidelines discussed in the case of Rotrok. Assessee is directed to provide necessary figures to the AO to substantiate its claim. As far as the earlier orders of the Tribunal are concerned we are of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t contribution was in violation of provisions of section 40A (9) of the Act. 11.1.AR submitted that Rs.6.86 lakhs were transferred to welfare fund of the employees, that amount was not transferred to a separate entity, that Rs.6.86 lakhs did not represent any contribution but was the amount spent on employees' welfare activities ,that Rs.19.52 lakhs were incurred as a grant to Mahindra Academy. DR submitted that assessee himself had admitted that Rs.6.86 lakhs were transferred to a fund, that children of the locality were also studying in the school run by the Academy, that both the contributions were hit by section 40A(9).AR admitted that the issue about disallowance made u/s. 40A(9)was set aside by the Tribunal for the assessment years 1996-97,1997-98 and 1998-99. 11.2.After hearing rival submissions we are of the opinion that it will be useful to refer to a few matters dealing with Sec.40A(9).One of them was matter of Raasi Cement Ltd (275 ITR 579).Hon ble AP HC in the case of framed following question law with regard to section 40(A)(9) of the Act : Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned that he erred in not following the decision of the hon ble Andhra Pradesh High Court in the case of CIT v. Vazir Sultan Tobacco Co. Ltd. [1988] 169 ITR 139, and that of the Commissioner of Income-tax (Appeals) in the assessee s own case for the assessment years 1987-88 to 1998-99. In the course of hearing before us, learned counsel for the assessee fairly conceded that this issue has been decided against the assessee in earlier years. by the Hon ble Income-tax Appellate Tribunal, Mumbai Bench F , Mumbai, in I. T. A. Nos. 3211 and 3212/Mum/2000 for the assessment years 1997-98 and 1998-99, a copy of which was placed in the paper book on pages 6 to 11. Paragraph 14 of the order deals with this issue, wherein it is mentioned that this very issue was considered by the Tribunal in the case of the assessee for the assessment year 1995-96. In that order it was held that the deduction is not permissible in view of the pro-vision contained in section 40A(9) of the Act and, consequently, the appeals of the Revenue for the assessment years 1997-98 and 1998-99 were allowed. Respectfully following that decision, this ground is dismissed. iii).Similarly,in the matter of National Dai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es offered to the employees on the date of grant of option and prices at which they were offered to the employees.. Employees' Stock Option Scheme (ESOP) was dealt by the AO as under : "As per the directions of the DRP-II, Mumbai, the expenses mentioned above are not being allowed as an expenditure because the expenditure has been incurred for increasing share capital of assessee company. The expenditure basically comprises the difference between market price and issue price employee stock option issue to the employees of the company. This issue will result into increase in the issued share capital of the company and, therefore, the expenses being the difference between the market price and issue price necessarily relate to increase in the share capital of the company." 12.1.The AR submitted that the expenditure incurred in respect of ESOPs was neither capital nor contingent nor notional in nature,that the difference was allowable as business expenditure, that there was no fresh issue of capital in the year under consideration, the shares were issued in 2002, the appellant wanted to reward its employees, that ESOP was compensation for services rendered, that it was welfare cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees Stock Option Scheme (ESOP). 12. During the year under consideration, the assessee company had allotted shares to its employees under the Employees Stock Option Scheme (ESOP). The said ESOP was granted on 22.11.2004 in respect of 8 lacs shares of the assessee company at Rs.30/- per share as against the market price of Rs.53.80/- per share. There was thus a price difference of Rs.23.80 per share which came a total of Rs.190.40 lacs in respect of 8 lacs shares given under ESOP. Out of this total amount, the assessee company had charged Rs. 66.25 lacs to its P L account for the year under consideration and the balance amount of Rs.124.15 lacs claimed in the immediately succeeding year i.e. A.Y. 2006-07. In support of the claim made on this issue, reliance was placed on behalf of the assessee company before the A.O. on relevant SEBI Rules which specified that the difference between the market price and the price at which the option is exercised by the employees has to be debited in the P L account as expenditure. It was contended that since there was no specific provisions contained in the Income Tax Act dealing with this issue, accounting practice suggested by the SEBI is req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the expenses as claimed by the assessee are not allowable as such. 20. In the case of Ranbaxy Laboratories Ltd. (supra), shares were allotted by the assessee company to its employees under ESOP at price less than the market price and the resultant difference was claimed as expenditure relying, inter alia, on SEBI guidelines. The Tribunal, however, confirmed the disallowance made by the authorities below on account of the said expenditure after examining all the relevant aspects and after giving elaborate reasons as can be seen from the relevant portion of its order which is extracted from the held portion: The assessee was to issue shares of face value of Rs.10 /- by receiving a sum of Rs.595/- per share from its employees. Thus the assessee was entitled to receive Rs.585/- towards premium on issue of shares. The market price at Rs.738.95 per share would have resulted in realization of higher share premium. The assessee has not accounted for the difference between Rs.738.95 and Rs.10/- as its income during the year. Thus there is no loss of income held to be taxable. What is loss to the assessee is by way of short receipt of share premium amount and not by way of any expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the expenditure. Thus, only on the basis of entry in the books of account the claim of expenditure is not allowable. The entry is made on the basis of recommendation of SEBI which is said to be mandatory for a listed company. The same may be relevant for the purpose of accounting but for allowability of expenditure under IT Act the direction of SEBI does not determine the alowability of expenditure. For the purpose of allowability of expenditure under IT Act the same has to be in consonance with the scheme of the Act. In the instant case the entry made in books of accounts as per direction of SEBI cannot be held to be conclusive for the purpose of allowing expenditure under s. 37. Unless the provision of s. 37 is complied with, the deduction is not permissible.- New India industries Ltd. Vs. asstt. CIT (2007) 112 TTJ (Del)(SB) 917 : (2008) 1 DTR (Del) (SB) (Trib) 247 and TVS Finance services Ltd. Vs. jt. CIT (2009) 23 DTR (Mad) 33 21. At the time of hearing before us, the ld. Counsel for the assessee has made an attempt to point out that certain aspects have not been considered by the tribunal while rendering its decision in the case of Ranbaxy Laboratories Ltd. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not constitute a contingent liability. The claim has been incurred and debited to P L a/c as required under binding SEBI guidelines and is admissible in law and there is no provision under the Act against allowance of the same. 3.7. CIT(Appeals) upheld the disallowance on account of ESOP made by AO by following observations: I have carefully considered the submissions of the ld. AR and perused the assessment order passed by the AO. It is seen that the appellant has claimed the expenditure on account of ESOP on notional basis. On the ground that the scheme was approved by SEBI. Hon ble Supreme Court in the case of Southern Technologies Ltd. vs. CIT 320 ITR 573 has held that the guideline of any regulatory authority cannot over ride the specific provisions of the Income tax Act. In order to claim a deduction admissible under I.T. Act, the appellant must show the specific provisions under which the same is allowable under I.T. Act. In view of the discussion and decision of Hon ble ITAT, Delhi in the case of Ranbaxy Ltd. (supra), I hold that the AO was fully justified in making disallowance of Rs.70,08,183/- on account of ESOP. I, therefore, uphold the disallowance made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee along with the case of Bank of America Securities (I) Ltd (136 TTJ 441).DR supported the order of the AO and submitted that incurred expenditure was of capital nature. Here, we would like to mention that judgement delivered by the Hon ble Bombay High Court in the case of Otis Elevators Company (India) Ltd is about section 40(a)(v),and not about capital/revenue expenditure. 14.2.After considering the rival submissions we are of the opinion that matter should be remitted back to the file of the AO. He is directed to consider the judgments of the Hon ble High Courts of Gujarat and Kerala in the matters of Gujarat State export Corporation Ltd. and Framatone Connector Oen Ltd. while deciding the issue. He is also directed to peruse the ratio laid down by M/s. New India Extrusion decided by New India Extrusions (P) Limited v ACIT 10 Taxmann.com 165 in this regard .One of us was party to said order of the New India Extrusions. Matter is set aside accordingly. 15.Next Ground is about adjustments made under section 92CA(3) of the act.In this regard decision of the AO is as under : "The reference as the provisions contained under section 92CA (1) of the I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference to the value of such recall tractors as on 31st December). 15.4.As per the AR rectifying the defects was the obligation of the appellant company, that reshipping of the tractors to India for rectification did not make commercial sense. He further submitted that transaction in question was not an international transactions as envisaged by the transfer pricing legislation.DR submitted that payments made by the appellant were not covered by the agreement, that transfer pricing Officer had read aloud item number 5, 6, 7 and his order. He referred to the page number 18 of the agreement entered into between the appellant and the distributor, i.e., the US company. He submitted that as per the agreement (para 40)appellant company had to be reimbursed for certain expenses. 15.5.AO has followed the directions of DRP in this respect. The directions issued by the DRP about payments made to the US company are as under "The next issue for consideration is the transfer pricing adjustment of Rs.97, 32, 802/-on account of reimbursement of various expenses. It was stated by the assessee that H3 series of tractors. had to be recalled due to certain manufacturing defects. Those tractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant and the US company. Besides the Para number 40, relied upon by the DR,para 22 , also indicates that appellant had not to incur any expenditure in this regard. The perusal of both the paras will be useful,at this juncture. Para 22-SALES AND SERVICES FACILITIES- Distributor shall be responsible to the seller for the proper representation of the products and shell maintain and shall cause to be maintained a place of business, sales room, parts department, and/or other facilities with suitable organisation and equipment in connection therewith, satisfactory to and in accordance with the policies of the seller. Distributor shall also use its best efforts to actively promote and develop sale and service of the said products throughout the territory, gave prompt and efficient service to its customers/buyers and confirmed in all respects to the policies recommended by the seller, from time to time." Para 40. PAYMENT OF TAX "Distributor shall, as part of the expenses of its business, pay any tax duty, the or other charges that may be levied upon or against, or on account of such business or upon any product that has been delivered to a carrier for the distributor' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, the company had sold capital assets having indexed cost of Rs.2,44,45,511/-for a consideration of Rs.59,23,646/-.As a result,it claimed long-term capital loss of Rs.1.85 Crores. 16.3.Undisputed fact is that the assessee had been allowed 100% depreciation on the assets used for R D purposes in the first year itself,as per the provisions of the section 35.If he is allowed indexation for claiming capital loss,it will amount to double benefit. Generally double deductions/benefits are not allowable under the fiscal laws, until and unless special provisions exit in the statue. Hon ble SC in the matter of Deepak Nitrite Ltd.( 199ITR43) has held- There is a fundamental, though unwritten, axiom that no Legislature could have at all intended a double deduction in regard to the same business outgoing; and, if it is intended, it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary,the statute should not be read so as to permit an assessee two deductions. Secondly, section 35 is part of head Income from business,profession or vocation -section 43 is part of the same heading. So,we are of the opinion that provisions of the head Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction with or on behalf of any person'. The agreement also mentions that the assessee cannot even sell the part of LCV's. Thus, it is clear from the language used in the business. Transfer agreement that said payment of rubies 1050 lakhs, which is a separate consideration for not carrying out business shows that the above payment of Rupees were 1050 lakhs is payment taxable under section 28(va) of the I T Act, rather than section 55 of IT Act wherein only the consideration to the extent of the right to carry on business (and not the right not to carry on business) is taxable." 17.2.AR submitted that the assessee had sold the right to carry business and hence, section 55(2) would be applicable and not Section 28 as held by the AO. He referred to the non-compete agreement (page 220-231 of the PB) and further submitted that it was a capital receipt. He relied upon the case of Dr. B.V. Raju (ITA No. 1034/Hyd/2004).DR submitted that amount received by the assessee was in the nature of a revenue receipt ,that after the amendments to section 28 and 55 of the Act law had changed with regard to non-compete fees, that assessee had given up his right to continue his business and hence it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith or one behalf of any person, carry on the business of manufacturing commercial trucks and buses with gross vehicle weight of three point five (3.5) tonnes and above, unless the Purchaser has consented to the same. The Seller shall not directly or indirectly or through its Affiliates sell trucks in the other parts of the world which compete with the Light Commercial Vehicles, unless the Purchaser has consented to the said sale on agreed terms and conditions In the background of above sections and the fact of the case we will try to analyse the issue in question. Prima facie ,both the sections appear more or less same, yet there is subtle difference between them. Section 28(va) starts with a negative direction, and it talks of carrying out of any activity in relation to any business. On the other hand, proviso to the said section and section 55(2) talk of a right to carry on any business and they are not in negative terms. As per the accepted principles of jurisprudence we have to presume that the legislature has not used any unnecessary words while amending the above referred to sections. So, if after the verb carry the Parliament has used out and on words in respective s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court in the case of Guffic Chem. P. Ltd.(332ITR602) also supports our view.In that case Apex Court had held that after1.4.2003 whenever an assessee is prevented from undertaking business activities, and he receives remuneration for such arrangement he is covered by section 28(va). In that matter Hon ble SC had held: One more aspect needs to be highlighted. Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till the assessment year 2003-04. It is only vide the Finance Act, 2002 with effect from April 1, 2003 that the said capital receipt is now made taxable (See section 28(va)). The Finance Act, 2002 itself indicates that during the relevant assessment year compensation received by the assessee under non-competition agreement was a capital receipt, not taxable under the 1961 Act. It became tax-able only with effect from April 1, 2003. .... In the present case, compensation received under the non-competition agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide section 28(va) and that too with effect from April 1, 2003. Hence, the said section 28(va) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the provisions of chapter XVIIB of the Act. He was of the view that once the assessee was debating the P L account, it automatically was crediting the party account based on matching principle. 19.2.Before us ,AR submitted that amount in question was year-end accounting provision to book, expenditure incurred, but in respect of which there was no obligation to either pay or to deduct tax at source is because no income had accrued to the payee, that no order had been passed under section 201 of the act holding, the appellant to be an assessee in default. Therefore, no disallowance could be made under section 40a(ia). He referred to page number 265 of the paper-book that gives details of provision on which TDS was not paid. As per the AR bills for the said expenditure were not received during the year under consideration. As per the AR, the appellant company would make year-end provisions based on services rendered by various lenders/professionals. These provisions represented cost of various activities carried out by the company during the relevant financial period. Since, the company was following the Mercantile system of accounting it was required to account for such expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to Kandivali unit of research and development and expenses amounting to Rs.59,83,80, 000/-was related to Nasik unit.During the assessment proceedings AO made the enquiry about claim of weighted deduction. 20.1.After considering the reply of the assessee and the direction is off DRP AO held that weighted deduction was not allowable to the assessee. In absence of the report in form number 3CL by the Department of Science and Industrial Research to the Director General (Exemption) as required by rule 6 (7A) of the Income-tax Rules,1962.AR submitted that R D facility was approved by DSIR under section 35 (2AB), that accounts of R D centre had been audited, that the report containing the details of R D had been filed with the AO, that claim had been denied only in view of the failure on the part of DSIR to submit a report to the Director-general (Exemptions).He further submitted that AO had denied the weighted deduction in respect of Kandivali, because the approval from DSIR pertained only to Nashik unit and form 3CM did not mention name of Kandivali unit. He relied upon the cases of Meco Instruments Pvt. Ltd, Sandan Vikas India Ltd.(326ITR251) Claris Life sciences. Ltd. AR furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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